I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

"Room To Grow" Blind To The Most Important Issue For The Middle Class -- Economic Growth

In 1900, we had no airplanes, no computers, no cellphones, no internet. We had only rudimentary versions of cars, trucks, telephones, even cameras. As Stephen Moore and Julian L. Simon report in their underappreciated work, It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years,

“It is hard for us to imagine, for example, that in 1900 less than one in five homes had running water, flush toilets, a vacuum cleaner, or gas or electric heat. As of 1950 fewer than 20 percent of homes had air conditioning, a dishwasher, or a microwave oven. Today between 80 and 100 percent of American homes have all of these modern conveniences.”

Indeed, in 1900 only 2% of U.S. homes enjoyed electricity.

Moore and Simon explain that the real difference between 1900 and today is that real per capita GDP in the U.S. grew by nearly 7 times during that period, meaning the American standard of living grew by that much as well. Such continued, sustained economic growth would solve every real problem America faces today.

An Often Overlooked Math Lesson

If total real compensation, wages and benefits, grow at just 2% a year, after just 20 years the real incomes and living standards of working people would be nearly 50% greater, and after 40 years they would be 120% greater, more than doubled. At sustained 3% growth in wages and benefits, after 20 years the living standards of working people will have almost doubled, and after 40 years they will have more than tripled.

The U.S. economy sustained a real rate of economic growth of 3.3% from 1945 to 1973, and achieved the same 3.3% sustained real growth from 1982 to 2007. (Note that this 3.3% growth rate for the entire economy includes population growth. Real wages and benefits discussed above is a per worker concept). It was only during the stagflation decade of 1973 to 1982, reflecting the same Keynesian economics that President Obama is pursuing today, that real growth fell to only half long term trends. And Obama is falling short of even that, now in our sixth year of his misleadership and misrule, way too long to wait for now long overdue true recovery.

If we could revive and sustain that same 3.3% real growth for 20 years, our total economic production (GDP) would double in that time. After 30 years, our economic output would grow by 2 and two-thirds. After 40 years, our prosperity bounty would grow by 3 and two-thirds. If we are truly following growth maximizing policies, we could conceivably do even better than we have in the past world dominant (though actually declining) 40 years. At sustained real growth of 4% per year, our economic production would more than double after 20 years. After 30 years, GDP would more than triple. After 40 years, a generation, total U.S. economic output would nearly quadruple. America would by then have leapfrogged further generations ahead of the rest of the world.

Such restored, sustained, economic growth would rebuild the rapidly rising living standards that today’s middle class so anxiously wants to see again. It is also the ultimate solution to poverty, as after a couple of decades or so of such growth, the poor would climb to the same living standards as the middle class of today.

Such renewed, booming growth would empower the middle class to the prosperous retirement to which they still aspire, or at least still dream about. It would greatly ease the way to assuring health care for all, and privately finance the rapid medical advances and breakthroughs that modern medical science now increasingly offers in prospect. Families could more readily fund and finance higher education, and new, expansive homes for growing children.

Booming economic growth would produce surging revenues that would make balancing the budget, while still maintaining funding for essential needs, so much more feasible. Surging GDP would reduce the national debt as a percent of GDP relatively quickly, particularly with balanced budgets not adding any further to the debt.

With sustained, robust, economic growth, maintaining the most powerful military in the world, and thereby ensuring our nation’s security and national defense, will require a smaller and smaller percentage of GDP over time. That security itself will promote capital investment and economic growth in America. The booming economy will produce new technological marvels that will make our defenses all the more advanced. With the economy rapidly advancing, there will be more than enough funds to clean up and maintain a healthy environment. America’s previous prosperity is what has enabled us to do so much to clean up the environment already.

As my colleague Louis Woodhill has observed, “There is nothing that the federal government could possibly do for the middle class (or any other class, for that matter) that having 30% more income would not do much, much better.” That is where we would be today if we had just kept the bipartisan economic growth of the Reagan and Clinton years going. But there is so much more that can be done now to spark a 21st Century economic breakout today. For all of the above reasons, this is the top policy priority of today, by far.

English: Historical GDP per capita for the United States (Photo credit: Wikipedia)

Lead, Follow, or Get Out of the Way

The short book Room to Grow, published on May 22 by an outfit calling itself the “Young Guns Network,” is a collection of essays by known, recognized, younger policy intellectuals, purporting to offer new ideas for the Republican Party. An untimely outgrowth of a project of former House Majority Leader Eric Cantor (Tea Party wags used to call him “CantorWont”), the essays can remind readers of why there is such a strong feeling of unease about the current Republican leadership (counterproductively cautious and afraid of truly pathbreaking new ideas, without the courage of their convictions demanded by the times and circumstances).

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